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Part 1: Operational Excellence

Next Generation Risk Engineering Market Study

This is Part 1 in a 5 Part series publishing the results of the Next Generation Risk Engineering Market Study. 

Introduction

Much has been written and discussed on how industry and technology trends are shaping Underwriting, Claims, and other critical functions within commercial insurance; however, the impact on the Risk Engineer and on the tools at his or her disposal has largely remained out of the mainstream conversation. Traditionally, Risk Engineering is viewed as an operational function within a commercial insurer supporting the core business function, underwriting of risk; however, Risk Engineering—and risk assessment more broadly—is undergoing significant change as a function. Furthermore, the landscape of technologies available to enable Risk Engineers is undergoing significant disruption. These changes have not previously been studied in a comprehensive manner. 

To better understand this substantial upheaval facing the Risk Engineering industry, Synpulse executed the first industry-wide assessment of its kind during the second half of 2018. The Next Generation Risk Engineering Study documents the findings and insights learned through the assessment. 

Figure 1: Company Demographics, Headquarters and Line of Business Distribution 

About the Study

The inputs to this study are based on the results of a survey conducted globally in which 34 Risk Engineering industry experts from major commercial insurance carriers, reinsurers, and inspection companies participated. These companies are global in nature with more than half of respondents stating they operate across multiple geographic regions. As depicted above, a plurality of those surveyed work for companies headquartered in North America. (Figure 1) From a line of business and market segment perspective, most surveyed engineers work on large corporate risks in property and casualty; SME markets are also well represented among those surveyed. Those who responded with a focus in residential markets have businesses heavily concentrated in North America.

Operational Excellence - Leveraging Technology to Main the Edge

Figure 2: Digital Capability Levels of Adoption and Maturity

Operational Excellence is a state of mastery and proficiency in executing business strategy. Operational Excellence initiatives are those that result in improved operational efficiency, agility, and performance. This is especially true for Risk Engineering as a support function of Underwriting. The survey emphasizes understanding in-depth operational excellence opportunities and pain points of Risk Engineers given the business and technology dynamics that are changing the industry.

Digital Capabilities Overview

Survey respondents were asked to rate 17 digital capabilities spanning the areas of workflow, risk assessment, and client management and servicing. Option choices pertained to the levels of adoption and maturity for each capability ranging from, «not used or necessary» to «in use and not meeting expectations» to «in use and meeting expectations». As such, the top capabilities by average score among respondents are plotted above in the chart with the vertical axis pertaining to implementation potential and the horizontal axis pertaining to the level of maturity. (Figure 2)

Overall, the findings suggest that Risk Engineers are well equipped to conduct traditional Risk Engineering tasks and assessments as evidenced by the fact that core risk assessment capabilities are viewed as the most mature and in-place across survey respondents. In contrast, capabilities pertaining to customer interaction and client management are viewed as both key pain points and future opportunity areas where investment is being directed.

Capabilities «Performing as Expected»

The top three «performing as expected» capabilities reveal no surprises as they represent some of the most core Risk Engineering capabilities. These include Risk Scoring, which is one of the most crucial elements in an Underwriting decision whereby data and experience are applied to identify and understand internal and external risk factors clients might be exposed to, in order to provide actionable recommendations and to adequately insure against such exposures. Loss Estimate Calculation Framework, a capability to measure the value of potential loss and establish accurate reserves, is another core capability, which respondents largely view as mature and in-place.

Capabilities «Performing Sub-Par»

The capabilities that are pain points and underperforming are largely focused on client engagement. As mentioned, Risk Engineering is traditionally an Underwriting support function; however, direct client interactions are increasingly critical to overall client acquisition and retention.

Risk Engineering outputs traditionally amounted to internal communication between the Risk Engineer and Underwriter; however, it is now market practice to share such risk information directly with the client. The best way to do so in efficient, repeatable fashion is with Standardized Output Reports. The industry—and many of the respondents—are in the midst of responding to this challenge. Those surveyed struggle to do so in repeatable fashion with minimal effort whereby a polished output can be readily shared with the client. These external client reports are viewed as the business card of the Risk Engineering department and high expectations for visual and content composition apply. Hence, large investments are undertaken to make the reports visually appealing while keeping standardization and maintenance under control.

Risk Assessment Data Input Forms is another capability that is not performing as intended for many respondents. While the report is the output that will be shared and stored for future reference, the form is the where Risk Engineers fill in their qualitative and quantitative findings and overall opinion of the risk. An observation Synpulse has made on several occasions is that data capture is often done in an unstructured manner—this is particularly true of homegrown legacy systems—thus making it difficult to run any calculation or semi-automated analysis.

Finally, another capability performing sub-par is Recommendation Management and Follow up as it is challenging to set up a system that will successfully allow for engagement and dynamic collaboration by multiple parties. Also, such systems need to account for client expectations for multi-channel communications to handle recommendations and overall interaction.

Capabilities «Future Priorities or Currently Being Implemented»

Client-oriented capabilities also appear as those that are either on the horizon or are currently undergoing implementation to be productive. Capabilities such as Client Self-Assessment and Client Portal extend service offerings and communications abilities of Risk Engineers to more closely collaborate with clients, which is crucial in an increasingly client-centric world. When designing such client-facing capabilities, the design must be clearly focused on simplification and end-user usability while proactively addressing security concerns.

 

Figure 3: Market Distribution of Home-Grown Versus Market Solution Based Systems

Risk Engineering Platforms: Home-Grown vs. Market Solutions

The growing trend in accessible, economic, and configurable market-based software solutions also applies to Risk Engineering. Over the last decade, several market-based solutions have fostered client bases that account for a meaningful portion of the overall Risk Engineering market. Even so, Risk Engineering—and the broader Underwriting capability of risk assessment—are oftentimes considered comparative advantages of commercial insurers, particularly those who focus on large corporate risk. Thus, insurers have invested considerable amounts of money and resources to build tailormade software tools. Such tools have varying degrees of capability maturity.

57% of respondents said they currently leverage home-grown systems. (Figure 3) Of large carriers, 55% use home- grown systems; likely the effect of needing to handle complex integrations and proprietary risk assessment frameworks that do not easily fit into an off-the-shelf market solution.   

Besides compatibility factors, survey respondents indicate that market solutions and home-grown systems have differing advantages and disadvantages. The results show that while all emphasize risk assessment capability support, home-grown systems perform better in the client engagement area, and market solutions excel in workflow management.

On client engagement, this might be explained because carriers interact directly with their customers, thus being able to effectively and efficiently communicate the assessment results and recommendations as a key capability. On the other hand, vendors maintain an advantage in technical abilities, thus such solutions optimize around capabilities that are ubiquitously used across the industry. For instance, while customer interaction channels and methods may vary from carrier to carrier, the Risk Engineering workflow process is usually more generic.

As such, areas of improvement appear clear for insurers leveraging home-grown and market solutions.  Survey respondents suggest market solutions have room to improve on client engagement areas (Standardized Output Report, Recommendation Management & Follow-Up and Client Servicing), while home-grown systems can improve in process-related capabilities.

Figure 4. Data Integration Benchmark

Risk Engineering Integration – Lone Wolf or Orchestrator of the Pack?

As discussed thoroughly in the most recent Magazine article, «Tackling Information Overload: Equipping the Digital Risk Professional» vast amounts of risk data exist and are at the fingertips of the Risk Engineer; however, one of the key areas of improvement across the industry is to harness this information and transform it into structured data that is able to be organized, collated, and analyzed. To achieve operational excellence, a well-integrated system landscape with a seamless user experience is key. As such, survey respondents were asked about the adoption and maturity level for internal and external system integrations critical for enabling their work. (Figure 4)

Regarding internal systems, respondents articulate key pain points around Policy Administration System and Claims System integrations. Experience gained through Synpulse projects supports this in that large global carriers often face a reality of widely distributed and fractured system landscapes where different submission handling and policy administration tools might be used for different jurisdictions and lines of business. Hence, it’s not surprising that Policy Administration System integration and Claims System integration score at the bottom with less than 20% of respondents having this in use and meeting expectations. Those carriers that do have these integrations, also struggle due to complications across their system landscapes which can have paralyzing effects.

Regarding external system integration, survey results show the use of 3rd Party Data Aggregators are not yet fully embraced outside of the United States, and publicly available data that can be used in risk assessment are scarce. (The use of 3rd party data is further complicated for insurers operating in the European Union due to regulations, such as General Data Protection Regulation.) Further, if information is extracted from publicly available data sources, it oftentimes is used to enrich the submission information for small and medium-size enterprise business to accelerate the onboarding and renewal process. Companies like Planck Re or Terrene Labs offer solutions that streamline the submission process and expedite the time to quote.

In comparing all surveyed integration types, Document Storage rates the highest with more than 80% of all respondents having a solution in place or undergoing implementation. Document Storage integrations are not very complex but are key for data and client information management. Further, NatCat integrations are widely accepted and leveraged to receive hazard maps and catastrophe peril information. While many insurers offer pass-through integrations or some type of access layer, only a few actually use geocoded information to directly retrieve location driven values and indicate potential hazard areas to the Risk Engineer.

Workflow - How Process-driven is the Risk Engineering Industry?

Figure 5: Workflow Capability Maturity

If done right, a structured workflow setup can considerably boost efficiency. In contrast, efficiency and execution can be hindered if workflow steps are kept manual, usage is not intuitive, or if deviations from the happy path are not well accounted for. A workflow system needs to be flexible to adjust to the operating procedures and scalable to allow fast throughput in high-volume renewal cycles. Otherwise, bottlenecks will arise, and well-thought workflow paths create more obstacles for Risk Engineers.

For the survey, respondents were asked to take a closer look at the different capabilities that can be derived from a process driven-operating model. (Figure 5) KPI Reporting capabilities rated the highest with 87% of all respondents calling this a key capability that is implemented or planned to be implemented. QA and Peer Review is heavily used in the industry to guarantee high quality work before it is sent out to internal and external clients and to allow skill training and experience exchange among Risk Engineers. Almost 83% have it implemented or have it high on the agenda.

The lowest rated workflow capability is Accounting and Time Tracking. Less than 50% of the participants have it in place and only 8% are thinking of adding it in the future. While it’s an important internal initiative to have time tracked to derive the profitability of accounts and justify additional personnel requests, time tracking creates additional overhead and an administrative burden to the Risk Engineers. Also, insurers that leverage market solutions like Loss Control 360, Risk Control Technologies or AuSuM have out-of-the-box structured workflow capabilities in place and report relatively high levels of satisfaction with workflow capabilities.

Stay tuned for part 2 of our Risk Engineering Market Study coming in the next few weeks. Can't wait that long? We've got you covered – download the full report now by clicking below!

 

Contacts

Marc Kirchhofer
Manager
marc.kirchhofer@synpulse.com
 Marc Kirchhofer
Joel Smith
Senior Consultant
joel.smith@synpulse.com
 Joel Smith
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